In today’s briefing:
- Asia Economics: Where Do Asian Currencies Go as Fed Rate Hikes Cease?
- Real Rates Above 2%? Buy Bonds and Sell Equities
- Recession Nugget: 4 Charts for the Equity Bears, 1 Chart for the Bulls!
- Macro Regime Model: Inflation down while growth is on the up?
Asia Economics: Where Do Asian Currencies Go as Fed Rate Hikes Cease?
- The short-term outlook for Asian currencies is moderately positive as the US Fed signals an end to its hiking campaign. Economic conditions in major markets support this view.
- Trade-Reliant economies, particularly those depending on semiconductor exports, have seen their currencies endure larger setbacks. A tentative recovery in trade may provide an upside
- While policy uncertainty and investor risk aversion are headwinds, metrics of currency resilience remain broadly healthy across selected Asian markets.
Real Rates Above 2%? Buy Bonds and Sell Equities
- Using a relatively short data sample, we show that buying bonds when the US 10-year real yield rises above 2% has been an attractive strategy.
- Equities underperformed their long-term average once the real yield hit this critical level.
- Moreover, the Federal Reserve Target Rate and the real yield tended to drop once the latter crossed the 2% threshold.
Recession Nugget: 4 Charts for the Equity Bears, 1 Chart for the Bulls!
- Takeaways: Yield curve looks prone to make equities puke. Real economic data looks weak as well. Jobs still strong lending support.
- Let’s start by honing in on the historic perspective of the recent moves in the yield curve.
- Equity longs are already getting a taste of the curve medicine with SPX down some 6% in a month with long-end yields up more than 15%.
Macro Regime Model: Inflation down while growth is on the up?
- Every month, we present our best evaluation of the present and approaching month’s macroeconomic conditions, balancing risks and rewards.
- We put to use our Macro Regime Indicator framework, alongside the interactive Structural Asset Allocation Model, to carry out this analysis.
- Coming into September, we wrote that: “Looking ahead, we do not expect sudden shocks or changes to the current conditions.
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